It was a game of cat and mouse—a very
special mouse. The mus musculus in
question was a transgenic laboratory
mouse that researchers coveted for
its human-like immune-system response.
The cat was the Bill & Melinda Gates Foundation,
which after several unsuccessful attempts
was determined to secure a supply of
the mice to advance research into vaccines
for HIV, malaria, and other diseases that
disproportionately affect the developing
world. When the foundation spotted a company
with a promising mouse technology
that was in need of capital, it pounced.

In May 2014, the Gates Foundation made
a $20 million equity investment in Kymab
Ltd., based in Cambridge, England. Kymab’s
promising technology and strong team were
ideal for early-stage venture capital. The
company was also being sued for patent infringement.
Other investors balked at the
increased risk and the prospect of spending
millions on legal fees.

The Gates Foundation did its own due
diligence and found the risk manageable—and balanced by the opportunity to secure
reliable access to the mouse and to future
drugs and vaccines that could be delivered
for affordable prices in developing countries.
Along with the equity investment, by
the end of 2014 the foundation committed
$3.65 million in targeted research grants.

Such financial packages, along with
the Gates Foundation’s willingness to take
on risks that many others investors would
avoid, are critical components of the foundation’s
strategy to “nudge” private biotechnology
startups to turn their techniques toward
neglected diseases that wreak havoc
in the developing world. Like many things, the Gates Foundation’s $1.5 billion set-aside
for program-related investments (PRIs) is
the nation’s largest. And the foundation has
been among the most active in the ways it
has used PRIs to leverage private technology
for the public good.

The foundation has committed $167
million to 14 biotech investments, many of
which were accompanied by grants to fund
specific projects. With many of the most
promising approaches being pursued by
private companies, the PRIs are intended
to increase the chances of a hit on vaccines
and drugs for diseases such as malaria, HIV,
and typhoid.

In each case, the Gates Foundation insists
on a legally binding commitment in a
side letter that outlines the deal’s charitable
commitments, including a “global access
agreement” that guarantees low prices for
less-developed countries. Such commitments
can raise concerns for executives
and venture capitalists, who are reluctant
to see young biotech companies divert
resources from potential blockbusters
toward diseases for which no developed-world
markets exist.

Equity investments can help align the
interests of the companies and the foundation
in ways that grants cannot, says James
Rosen, deputy director of PRIs at the Gates
Foundation, who joined in 2015 after a
decade as a biotech venture capitalist at
Intersouth Partners.

“If, say, there’s a vaccine platform technology
for heart disease and cancer that is
also applicable to HIV, we say, ‘Let us help you
with the development of the platform,’” says
Rosen. “There are incredible technologies
that are housed within biotech companies.”

A $5 million investment in 2012 by the
Gates Foundation in Genocea Biosciences,
Inc., for example, nudged the Cambridge, Mass., company to focus its groundbreaking
T-cell target discovery technology on malaria.
Eventually the foundation’s investment
and grant for malaria research paid off with
the identification of components that may
be useful for a malaria vaccine.

“The notion of going after big, big ideas
is something that in today’s environment
investors really like,” says Chip Clark, CEO
of Genocea, which became a publicly held
company in 2014. “To do so with support
like the Gates Foundation’s is a positive.”

The arrival of a new investor like the
Gates Foundation on the startup biotech
scene can have a huge impact, not only on
the unmet needs of populations exposed to a
high burden of infectious diseases, but on the
companies themselves and their investors.

“I think a huge amount about aligning
incentives,” says Julie Sunderland, the
founding director of the Gates Foundation’s
PRI team. Sunderland says that the
key is the amount of overlap between the
objectives of the foundation and the company.
“If there’s not enough overlap, then
we shouldn’t do the deal. If there is a lot of
overlap and we can de-risk or we can provide
capital in creative ways to enable them
to do the things that they want to do, those
are our best deals.”

Mouse Trap

The Gates Foundation’s investment in
Kymab repeated its “nudge” approach.
Historically, as much as 90 percent of the
research and development investments in
medical technology globally has been spent
on health issues that affect only 10 percent
of global morbidity and mortality. One way
to overcome that disparity is to increase access
to leading technologies with the potential
to improve human health—technologies
like a humanized mouse model.

The Gates Foundation investment team
knew from their scientific colleagues that
mice that make human antibodies (in scientific
terms: transgenic mice with a human
B-cell repertoire) would be valuable for vaccine
research, in addition to their potential
use in the discovery of potential drugs for
asthma, rheumatoid arthritis, cholesterol,
and even cancer.

“We had a clear need for mice able to
generate human antibodies both as potential
products and as a means for testing vaccine
responses,” says Chris Karp, a director
in the Gates Foundation’s Global Health Program and its former lead on vaccine discovery.
Most pressing was the need for a vaccine
for malaria, which still kills roughly half
a million people each year and debilitates
many more.

The Gates Foundation had previously
tried to gain access to these types of
technologies. Not surprisingly, potential
partners had not quickly embraced the
research the foundation was proposing.
There’s a huge need for vaccines for diseases
that mostly affect poor countries, but
revenues from those markets are unlikely
to cover the costs of the drug’s research and
development. In other words, there is little
business incentive to take on diseases like
dengue fever or typhoid.

“We didn’t have the opportunity to start
these types of vaccine programs, because
they’re not as commercially viable as our
therapeutic antibody projects,” says Glenn
Friedrich, Kymab’s chief operating officer.
“We need to spend our equity on programs
with a clear commercial benefit.”

Kymab’s “Kymouse platform” could be
fine-tuned for multiple immune responses
that mimic a natural human response—just
what the Gates Foundation’s product development
partners needed. The Gates Foundation
team considered using a traditional
grant, or even a fee-for-service contract, and did ultimately commit $3.65 million in
grants to Kymab for the research on malaria
and other projects.

The foundation was looking beyond the
malaria project. At some point it would need
access to the mice to advance research on its
other priority diseases, notably HIV and typhoid.
Kymab might well decide that such
projects were not worth pursuing, even with
additional grants or contracts.

If the Gates Foundation could get
Kymab to accept an equity investment in its
core platform as well, the foundation could
not only secure a reliable supply of lab mice,
but also lower the price of neglected-disease
drugs and vaccines developed with the technology
via the Global Access agreement.

In addition to money, the Gates Foundation
brought an imprimatur of social
purpose. With a malaria vaccine mission,
Kymab could demonstrate the efficacy of
its platform and invigorate its staff. Even
without a commercial market, a successful
vaccine project could propel the company to
the forefront of vaccine innovation.

The timing was good. Kymab was in the
market to raise an additional round of funds.
The company wanted an equity investment
to ensure broad access to the Kymouse platform.
The Gates Foundation’s $20 million
Series B equity investment in Kymab was the foundation’s largest direct equity PRI to
date. The Wellcome Trust, the founding investor
in Kymab, agreed to match the Gates
Foundation’s investment dollar-for-dollar.

The Gates Foundation used a side letter
to the equity agreement, a standard approach
for clarifying investor-specific legal
terms, to document the company’s commitment.
The agreement obligated Kymab
to make any vaccines discovered with the
foundation’s funding available at affordable
rates in developing countries. It also included
a requirement that if Kymab deviated
from the charitable commitment, it was obligated
to buy back the foundation’s shares.

That still left the company free to apply
its technology to tackle diseases such
as cancer and sell its products in
developed markets at whatever
price it chooses. “It’s essentially
a cross-subsidization structure,”
says Jenny Yip, a program investment
officer at the Gates Foundation.
With that agreement, the
foundation granted Kymab the
funds to implement the malaria
research.

In May 2015, Kymab completed
the Series B financing that
the foundation and Wellcome
Trust had launched earlier with
matching $20 million investments.
Kymab raised an additional
$50 million from Woodford
Patient Capital Trust and
Malin Corporation.

With access to the Kymouse,
the foundation and Kymab have
completed the first phase of the
malaria project. And, earlier than
expected, the Gates Foundation
and Kymab have embarked on
additional grant-funded projects
to seek drugs and vaccines for typhoid, HIV,
pertussis, and other infectious diseases.

Each of these global health projects provides
low-cost, rapid information about the
human immune response to the building
blocks of future vaccines—data that previously
were not available until clinical trials
were performed in people. Data that used to
require years to obtain are now produced
within months.

The Kymab malaria project has generated
data pointing to vaccine components
that could be used in humans to provoke antimalarial
responses. The project has gone as far as identifying individual antibodies
that on their own block parasite infection
in preclinical test models. Using this type
of data, the foundation and its global health
partners are able to focus precious resources
on the vaccines and immunotherapies
with the highest potential. Getting it right
may save millions of lives.

“We’re investing with a goal,” says
David Rossow, a senior program investment
officer on the Gates Foundation PRI team.
“Small pushes can have big changes.”

Test Drive

Meanwhile, in that other Cambridge, in
Massachusetts, Genocea had pioneered a
T-cell target discovery technology to develop vaccines and immunotherapies for infectious
diseases. Most vaccines have stimulated
B-cells, another part of the immune system,
to generate antibody responses against
pathogens. But T-cells are increasingly recognized
as critical to the immune response to
a wide range of infectious diseases.

Such breakthroughs are still many years
and dollars from commercialization. But
the Gates Foundation believes that developing
critical components and ensuring global
access are critical steps in creating effective,
low-cost products for the developing world.

Founded in 2006, Genocea is a leader in
working with such T-cell technology, having
started vaccine programs against three
pathogens that appeared to work in animals.
No T-cell vaccines, however, had achieved
human proof-of-concept. At the time of the
Gates Foundation investment, Genocea’s
lead product was a herpes vaccine.

“A treatment for herpes was not the objective,”
says Rossow, who has helped put together
many of the foundation’s biotech investments.
“We wanted to work on malaria.
A successful application of this technology
to malaria would be huge.”

Genocea, in fact, had been working with
the US Navy on the early stages of a malaria
vaccine discovery program. Malaria is very
much a threat for the US military. In tropical
zones, the military faces more morbidity from malaria than from bullets.

“When the parasite is injected through
the bite of an infected mosquito, it rapidly
travels to the liver, where it replicates in
large numbers and is released into the bloodstream,
causing sickness,” Genocea says on
its website. “T-cells in the liver could potentially
kill the cells in which the parasite is
hiding before the parasite is able to break out
into the bloodstream.”

Identifying an effective T-cell antigen
for malaria, however, “is like finding a needle
in a haystack. You need a massive number
of samples from people who are protected
from malaria,” says Rossow.

The Gates Foundation had been working
with other pharmaceutical companies and research partners to collect such samples.
Besides capital, the foundation team
could bring to a partnership with Genocea
access to its world-class scientists. It could
also introduce the company to other entities
that could provide an array of T-cells for
the malaria research the foundation funded.

Genocea was preparing to raise its Series
C financing after raising more than $46 million
in previous rounds. Many of its previous
investors, including Johnson & Johnson
Development Corporation, Polaris Partners,
Skyline Ventures, Lux Capital, and SROne,
the venture arm of GlaxoSmithKline, were
preparing to double down on Genocea.

With a $5 million equity investment
on the table, earmarked specifically for the
development of the platform technology
and its application to malaria research, the
Gates Foundation was expecting pushback
from Genocea’s other investors. Instead,
“The other investors got comfortable with
the project,” says Genocea CEO Chip Clark.
“For one, the foundation’s capital would be
additive to the round financially. And we
weren’t proposing to hose out cash at just
any idea. And two, the foundation is building
a reputation as smart money, so we saw it
as an opportunity to get validation.”

Clark says taking the Gates Foundation’s
investment to work on a malaria vaccine was
like selling a car. “When you’re selling a car, you take the customer for a test drive, right?
It’s easier to prove it runs if it starts,” he says.
“The Gates investment made it easier for
Genocea to invest and do other products.”

In October 2012, Genocea closed a $30
million round, including $5 million from the
Gates Foundation. In addition to adding the
capital, the foundation introduced Genocea
to other research partners that would ensure
the availability of additional T-cell samples.

In its charitable-intent side-letter
agreement with the Gates Foundation,
Genocea agreed to make the T-cell platform
available for its other priority diseases and
to make any drugs produced through the
partnership available in developing countries
at an affordable price. The side letter
also protected the global-access rights in
case of an acquisition. As required, it gave
the foundation a right to withdraw its capital
if the company willfully neglected the
agreed programmatic goals.

The malaria research sputtered from
the start. “It was challenging working with
collaborators from other countries and getting
everyone working on the same timelines,”
says Clark. “The other collaborations
weren’t so urgent.” Getting public and private
partners to work together on the research,
he says, “was a herding-cats problem for the
Gates Foundation.” One problem was getting
access to enough T-cell samples. Says Rossow,
“The timeline kept getting pushed back.”

In September 2014, the foundation put
up another $1.2 million, in the form of a
grant, to extend the malaria project. Then
another obstacle arose over control of the
intellectual property associated with the Tcell
samples from other researchers. In the
end, Genocea did gain access to the samples
and was able to identify a cluster of antigens
that may be useful in a future vaccine.

In February 2014 Genocea became a
publicly held company. After a dip in the
company’s stock price, the foundation subsequently
exited its position in 2015 for $4.7
million, a small loss relative to the initial
$5 million investment. Because of the sideletter
agreement, the research project and
Global-Access commitments survive. If the
restrictions came up in discussions with
investors at all, they came up in a positive
way, Clark says. “The foundation is at the
forefront of stimulating investment in underserved
diseases,” says Clark. “I’d partner
with them again in a heartbeat if it meant we
can go after other diseases.”

Dennis Price (@dennisaprice) is a writer and project director at ImpactAlpha.
He has more than a decade of experience at the intersection of
markets and development.

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